European businesses in Vietnam continue to criticize the country for its lax protection of intellectual property rights, which they say has put off investors from bringing new technology into the country.

According to the European Chamber of Commerce (EuroCham), Vietnam is currently competing internationally based on low labor costs and the government aims to move toward high technology and value added areas.

"But unless there is real, implemented protection of intellectual property rights, investors are unlikely to bring their technology to Vietnam, and Vietnam will remain in the low labor cost trap," the group said in its annual publication released Friday, which covers investment issues facing European firms and their recommendations for solutions.

EuroCham said European firms' perception of Vietnam as a business destination has worsened this year, with the Business Climate Index dropping for the first time to below the mid-point of 50.

The group, with almost 800 member companies, said Vietnam has undertaken reforms to improve the business environment in a number of areas in the past year, but stressed that "more needs to be done."

It said two other of issues that are of great concern to European businesses are pricing and the role of the state-owned companies play in the economy.

Price changes require approval from the authorities in various sectors while state companies generally receive favorable treatment despite performing inefficiently, the group said.

"This is worrisome for both European businesses and Vietnam because if these issues are not addressed, then foreign investors simply will not invest," it said.

"EuroCham believes that recent developments, such as the beginning of negotiations for a Free Trade Agreement (FTA) between Vietnam and the EU, represent an important signal for Vietnam," Executive Director Paul Jewell said.

"The coming years will determine the longer term future of Vietnam if the government is successful in addressing the issues identified by the business community and a comprehensive FTA is signed, then Vietnam will be a very strong regional player," he said.